Economic activity in the Eighth District showed continuing signs of modest growth. In manufacturing, several contacts reported plans to open plants and expand, while some other contacts reported plans to close plants and lay off employees. In the services sector, most contacts continue to report improving economic conditions and job growth. In the retail and auto sectors, sales were reported as flat or slightly down in January and February with respect to year-earlier levels. Residential real estate markets continue to be robust, while commercial real estate remains soft, albeit showing some signs of improvement. Lending conditions are largely unchanged.

Consumer Spending
Contacts reported that retail sales in January and February were down by less than 1 percent, on average, over year-earlier levels. While 50 percent of the retailers surveyed noted that sales levels met their expectations, 38 percent reported that sales were below what they had anticipated, and 13 percent reported sales above expectations. Seasonal items, food, housewares, electronics, apparel, and hardware were all strong sellers, while shoes, children's apparel, and gift items were moving more slowly. Most contacts noted that inventories were at desired levels. Retailers also appear generally optimistic about sales over the next two months.

Car dealers in the District reported that, compared with last year, sales in January and February were virtually unchanged, on average. About 42 percent of the car dealers surveyed reported decreases in sales, while 38 percent reported increases. About 45 percent of the car dealers who responded noted that used car and low-end sales had increased relative to new car and high-end vehicle sales. Approximately 22 percent of the contacts reported increased use of rebates, while 65 percent reported no change. About 42 percent of car dealers reported that their inventories were too high, with a few reporting that all types of cars have been affected by excess inventories. Three-quarters of the car dealers surveyed stated that they are optimistic about increased sales during the next two months.

Manufacturing and Other Business Activity
Reports from the manufacturing sector in the period since our previous report have been mixed. A number of manufacturers reported plant openings and expansions, and slightly fewer contacts reported plant closings and cutbacks. Several small firms in the nonmetallic minerals, electrical equipment, and household appliance industries announced plans to open new plants in the District, likely resulting in more than 130 new jobs. Other firms in the aerospace, furniture, and food processing industries reported plans to expand facilities, add new production lines, and hire as many as 610 new workers. In terms of employment, these positive reports were more than counteracted by negative reports. District manufacturers reporting plans to close plants and reduce the workforce include firms in the beverage, machinery, plastics, textile mill, and fabricated metal product industries. The closings and layoffs in these industries would displace as many as 1,480 workers by early 2007.

The District's service sector continues to improve in most areas. Contacts in the utilities, airport operations, recreation, traveler accommodation, food service, transportation and warehousing, medical laboratories, and educational services sectors reported new facility openings and expansions. Other firms in the business support, computer product, and technical services sectors reported plans to add new operations and hire as many as 255 workers. For example, one firm in the freight transportation industry plans to hire 200 new workers to meet increased demand in international markets. In contrast, several contacts in the educational services and health care sectors reported plans to lay off several hundred employees.

Real Estate and Construction
In the Eighth District 2004 was another banner year for the residential real estate market. In Memphis, 2004 home sales were up 13.8 percent over 2003. In St. Louis, 2004 home sales were up 2.6 percent over 2003. In northern Kentucky, 2004 home sales were up 8.6 percent over 2003. In most of the District's metropolitan areas, except west Tennessee and the greater St. Louis area, 2004 permits were up.

Commercial real estate markets continue to lag behind residential markets in most of the District but seem to be slowly strengthening. In Louisville, from the third to fourth quarter of 2004 the overall office vacancy rate declined from 19.5 percent to 19.2 percent and the industrial market also declined from 9.8 percent to 9.2 percent. In Memphis the year-end industrial vacancy rate closed 2004 lower at 18.4 percent. Commercial construction continues to do well in the District, with several new projects in Louisville. Contacts in Memphis also predict a strong 2005.

Banking and Finance
A survey of senior loan officers at a sample of District banks indicated little change in overall lending activity in fourth quarter 2004. During this period, credit standards for commercial and industrial, commercial and residential mortgage, and consumer loans remained basically unchanged. During this period, demand for residential mortgage loans showed some indications of weakening, while demand for commercial real estate and consumer loans was unchanged.

Agriculture and Natural Resources
Recent fieldwork activity seems to have been limited as a result of muddy fields or surplus soil moisture levels. The current winter wheat crop is mostly in fair or good condition. The total value of all District field crops declined 6 percent from 2003 to 2004. Missouri was the sole District state showing an increase. The number of catfish operations and water surface acres used for production is unchanged from January 2004 in Mississippi, the nation's largest catfish producer.